HMRC is pressing ahead with measures to tackle offshore tax evasion, including a new ‘strict liability’ offence of hiding taxable income and gains offshore.
Included within the deluge of consultation documents published in the wake of the Summer Budget were a set of proposals aimed at tackling offshore tax evasion. Perhaps the most controversial of the proposed measures is a ‘strict liability’ criminal offence for those with offshore tax irregularities.
What is the new criminal offence?
The proposed new offence, which would only apply to offshore issues, could be triggered by:
- failing to notify HMRC of chargeability to tax;
- failing to file a return; or
- filing an inaccurate return.
It would apply only to income tax and capital gains tax initially, but it could be extended in the future to other taxes. Penalties arising could consist of monetary fines and/or a prison sentence of up to six months. The offence would be applied where the amount of under-declared tax for a tax year exceeds a threshold amount. The current proposal to restrict it to cases where at least £5,000 of tax has been under-declared in the year. This is aimed at ensuring that criminality will only attach to larger irregularities, however a concern remains that complex technical issues involving additional tax in excess of the threshold will fall to be categorised under the new offence.
It is also proposed that the legislation would not be applied retrospectively (i.e. in respect of offences arising prior to the introduction of the new measure). The usual defences of having taken reasonable care in preparing a return and having a reasonable excuse for failing to declare liabilities or filing returns will also apply. However, no other safeguards are proposed at this stage.
No intentions necessary
The key characteristic of a strict liability offence is that the prosecution does not need to prove deliberate intent. Hence, it could be applied where the taxpayer has merely been slow in getting his or her tax affairs in order.
HMRC is also reviewing the existing civil deterrents applicable to offshore evaders. A number of options are being considered for strengthening the sanctions available, such as increasing the minimum penalty from 20 to 30 per cent or 35 per cent of the extra tax due. Some may think it unlikely that these measures would encourage more taxpayers with undeclared income and gains to come forward voluntarily. However, arguably the proposed strict liability criminal offence may prove to be a more effective deterrent.
HMRC uses common law powers in bringing prosecutions for alleged tax fraud. However, it claims that this is a complex and time consuming business where proving intent can be difficult. These measures are aimed at reducing that burden, but it remains to be seen how effective they will be.
Going forward, we recommend that you bring any uncertainties you have over your offshore tax affairs to our attention so that specialist tax advice can be provided to ensure any irregularities are resolved. To speak to someone confidentially, call our helpline on 0800 032 8374.